EFFECTS OF PROFIT WARNINGS ANNOUNCEMENT ON PERFORMANCE OF STOCKS IN THE NAIROBI SECURITIES EXCHANGE
Journal Title: European Journal of Business and Social Sciences - Year 2014, Vol 3, Issue 3
Abstract
This study examined share returns following unexpected corporate announcements that are described as profit warnings. The study tested whether there are abnormal returns on share prices after the announcement of profit warnings. The report is based on the 56 companies quoted on the Nairobi Securities Exchange (NSE) and samples drawn from companies that have issued profit warnings. The research design used was the event study which assessed the impact of an event on the value of a firm. This research used the one hundred and fifty days event window where twenty days are prior and twenty days are after the profit warning announcement. Event study methodology, student T-test before event date and Average Abnormal Return (AAR) significance from zero were used to analyze data collected on daily stock prices. The result of this research indicates that profit warning has impact on the stock return in the NSE and the impact is negative and significant for the period of pre-warning and post-warning and on the day of actual announcement. There are also indications of information leakages where there were negative abnormal returns days before the profit warning announcements. Based on this research, the recommendation to the investors or practitioners in the NSE is that profit warning announcements are information events that influence the investment decision and should thus expect negative abnormal responses of share prices following such announcements but further studies may be commissioned to confirm or disapprove our findings.
Authors and Affiliations
Richard W. Kiminda| Department of Accounting and Finance Dedan Kimathi University of Technology, P.O Box 657 – 10100, NYERI Correspondence Email: richard.kiminda@gmail.com, Christopher K. Githinji| Department of Accounting and Finance Dedan Kimathi University of Technology, P.O Box 657 – 10100, NYERI Correspondence Email: richard.kiminda@gmail.com, Riro G. K| Department of Accounting and Finance Dedan Kimathi University of Technology, P.O Box 657 – 10100, NYERI Correspondence Email: richard.kiminda@gmail.com
Keywords
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- EP ID EP10427
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